MOHD. ASADULLA,BANGALORE vs. ACIT, BANGALORE

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ITSSA 41/BANG/2009Status: DisposedITAT Bangalore15 January 202432 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessment order passed under Section 158BC of the Income Tax Act, 1961, is void-ab-initio due to the non-service of a mandatory notice under Section 143(2) of the Act. The Tribunal noted that while the department claimed a notice was issued on October 6, 2003, it failed to produce any acknowledgement or proof of service of this notice on the assessee. The Tribunal emphasized that Section 143(2) requires service of notice, not merely its issuance, as held by the jurisdictional High Court in CIT vs. IDEB Buildcon Pvt. Ltd. The Tribunal found the revenue's reliance on the Adarsh Developers judgment to be misplaced as it pertained to jurisdiction under Section 120, not the issuance of notice under Section 143(2). Following the ratio laid down by the Supreme Court in CIT vs. Hotel Blue Moon and CIT vs. Laxman Das Khandelwal, the Tribunal concluded that the omission to serve the notice under Section 143(2) is a fatal defect. Consequently, the assessment order dated March 30, 2004, and all subsequent proceedings emanating from it were set aside. The additional ground raised by the assessee before the High Court, which was remitted to the Tribunal, was decided in favor of the assessee.

What were the facts?

This appeal before the Income Tax Appellate Tribunal (ITAT) concerns the block period from April 1, 1995, to March 26, 2002. The assessee, Mohd. Asadulla, had an assessment order passed against him under Section 158BC of the Income Tax Act, 1961, on March 30, 2004. This order was confirmed by the CIT(A) on June 28, 2005. The ITAT initially restored the matter to the Assessing Officer (AO) on March 8, 2006. A consequential order was passed by the AO on December 31, 2007, which was again confirmed by the CIT(A) on October 15, 2009. The assessee's appeal to the ITAT (IT(SS)A No.41/Bang/2009) was dismissed on June 8, 2016. Subsequently, the assessee filed an appeal before the jurisdictional High Court, raising an additional ground regarding the validity of the assessment due to non-issuance of a mandatory notice under Section 143(2). The High Court, by order dated February 27, 2023, set aside the ITAT's earlier order and remitted the matter to the ITAT for fresh consideration of this additional ground.

What were the issues?

1. Whether the assessment order dated March 30, 2004, passed under Section 158BC of the Income Tax Act, 1961, is void-ab-initio due to the non-service of a mandatory notice under Section 143(2) of the Act. Assessee's Contention: The assessee argues that no valid notice under Section 143(2) was served before framing the assessment order under Section 158BC. The department has failed to produce any evidence of service, such as an acknowledgement. Therefore, the assessment order is bad in law and should be quashed. The assessee relies on the jurisdictional High Court's decision in CIT vs. IDEB Buildcon Pvt. Ltd. and the Supreme Court's judgments in CIT vs. Hotel Blue Moon and CIT vs. Laxman Das Khandelwal, which hold that the omission to issue a notice under Section 143(2) is not a curable procedural irregularity and cannot be dispensed with. Revenue's Contention: The revenue contends that a notice under Section 143(2) dated October 6, 2003, was issued and dispatched to the assessee on October 9, 2003. An order sheet entry dated October 6, 2003, records that the "143(2) notice issued." The revenue also points to a notice under Section 142(1) issued on January 22, 2004, and the assessee's subsequent appearance before the AO. The revenue relies on the High Court's judgment in Adarsh Developers, arguing that the assessee cannot question the AO's jurisdiction after a considerable time.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 158BC,Section 142(1),Section 120,Section 158BB,Section 143(3),Section 145

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE

Before: SHRI GEORGE GEORGE K. & SHRI CHANDRA POOJARI

For Appellant: Ms. Suman Lunkar, A.R
For Respondent: Shri Subramanian S., D.R
Hearing: 11.01.2024Pronounced: 15.01.2024

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

Originally this appeal was disposed of by this Tribunal vide order dated 8.6.2016, wherein the Tribunal adjudicated the ground No.4.1 against the assessee in main grounds which reads as follows:

“4.1 In any case without prejudice, the lower authorities have erred in holding that the appellant has undisclosed income/unexplained investments of Rs.1,75,00,000/- in Gottigere Land and Rs.2,00,000/- towards construction cost. On proper appreciation of facts and the law applicable there is no undisclosed income at all.”

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2.

Thus, the Tribunal dismissed the appeal of the assessee. On dismissing the above appeal by this Tribunal, the assessee filed an appeal before Hon’ble jurisdictional High Court in ITA MNo.558/2016 by raising following additional ground:- “Whether the entire assessment proceedings are without jurisdiction as the mandatory notice u/s 143(2) of the Act was not issued as per law and more so not issued within the prescribed time limit as per the provisions of section 143(2)(ii) of the Act on the facts and circumstances of the case.

2.1 The Hon’ble High Court judgement dated 27.2.2023 disposed the above appeal by observing as under: “4. This court vide order dated 3.1.2023 has ordered that the said question shall be considered along with the questions already admitted for consideration. He submits that the above additional question involves question of limitation and requires to be answered by the Tribunal on facts. Therefore, the entire matter may be remanded to the Income Tax Appellate Tribunal for fresh consideration in accordance with law.

5.

Shri E.I. Sanmathi submits that the remand order may be limited to the above additional question only. In case the assessee succeeds, he will get relief. In the event, assessee does not get any relief in respect of the above question, the other questions may be kept open. 6. In view of the above, following

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ORDER 1. Appeal is allowed in part. 2. There order dated 8.6.2016 in ITA No.IT(SS)A No.41/Bang/2009 passed by the ITAT is set aside. Matter is remitted to the ITAT for fresh consideration of the above additional question in accordance with law. 3. All other questions raised in this appeal are kept open with liberty to assessee to file the appeal afresh, in case he does not get relief on consideration of the above additional question by the ITAT. No costs.”

2.2 Hence, this appeal is listed for hearing today for considering the above ground of appeal. 3. The ld. A.R. submitted that there was no notice u/s 143(2) of the Act served to frame assessment order dated 30.3.2004. As such, assessee raised the additional ground before the Hon’ble High Court which has been remitted to the file of Tribunal, so as to adjudicate the same. She submitted that there was no evidence of service of notice issued u/s 143(2) of the Act dated 6.10.2003 has been produced by the department. Hence, the case to be decided in favour of the assessee by placing reliance on the judgement of jurisdictional High Court in the case of IDEB Buildcon Pvt. Ltd. reported in ITA No.507 of 2014 dated 2.2.2016 and also judgement of Hon’ble Supreme Court in following cases: 1) CIT Vs. Hotel Blue Moon (321 ITR 362) (SC) 2) CIT Vs. Laxman Das Khandelwal (108 Taxmann.com 183) (SC) 4. The ld. D.R. submitted that notice u/s 143(2) of the Act dated 6.10.2003 addressed to Mohd. Asadulla, General Manager, Amanat Co-operative Bank Ltd., Shivajinagar, Bangalore-1 has been dispatched to the assessee on 9.10.2003. This was also evidenced by order sheet entry dated 6.10.2003 as follows: “143(2) notice issued”

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4.1 Further, he submitted that a notice u/s 142(1) of the Act was issued on 22.1.2004. Consequent to this, assessee appeared before the ld. AO on various dates and assessment was completed vide assessment order dated 30.3.2004 u/s 158BC of the Act. Later, assessee carried the appeal before ld. CIT(A) and the ld. CIT(A) vide order dated 28.6.2005 has confirmed the order of the ld. AO whereupon the assessee filed appeal before this Tribunal. The Tribunal vide order dated 8.3.2006 has restored the matter back to the file of ld. AO with following observations: “ We have heard the counsels at length. We have perused the appellate order as well as the decisions cited. The additions are based mainly on the copy of document filed as a result of search and the confessional statement given by the appellant during the course of search. Apart from the above, no corroborating material is found from the appellant, which in any way suggest that the appellant was in possession of such huge cash, stated to have been utilized for acquiring the property and for construction of the house. When the contents of documents are denied by appellant as well as the vendor thereof by filing affidavit and particularly, when no material is found which suggest that the assessee was either in possession of such huge cash or was resourceful enough to generate such cash, learned CIT(A) should not have simply rejected such affidavits by treating the same as an after thought. The documents of property, which narrates the payment to the tune of Rs.175 lakhs, as alleged by the revenue is stated to have been provided as security for overdraft availed by the appellant for purchasing property at Kwality Bar and Restaurant. At the same time it is the contention of the appellant that the security offered for the so called overdraft account is something different. No finding has been given in this regard by learned CIT(A). Though it is held by various courts that admission is best of evidence in all the cases, such universal law cannot be applied, particularly when the assessee as well as the counter party has retracted such admission by filing affidavit. It seems very unusual that the entire payment for acquiring land from Mr. Raffi Baig and other is stated to have been paid in cash. No prudent man with a reasonable understanding of the subject will make the entire payment without obtaining any receipt there for. No receipt issued by Mr. Raffi Baig has been found during the course of search. It is also unusual that Mr. Raffi Baig has parted with the possession of a property valuing Rs.200 lakhs on receipt of consideration of a sum of Rs.25 lakhs only. Thus, though the addition is made based on the documents found and the confessional statement given, in our opinion, the issue is required to be re-examined by the AO after affording a reasonable opportunity to the appellant to demonstrate that such admission was factually incorrect and was under certain compulsion.

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As regards the amount stated to have been spent for construction of house property, apart from the diary recording the payment, no bills or any other document is found. At all time, it is the contention of the appellant that though property is constructed, such huge sum is not paid and this can be verified even by deputing the Valuation Officer. In our opinion, this issue is also required to be re-examined by the AO by availing the services of Valuation Officer. It is made clear that the appellant himself has agreed to get the property valued by Valuation Officer and hence the assessee is precluded from raising any objection regarding valuation being done by the Valuation Officer to arrive at the undisclosed income, if any. We accordingly restore this matter also to the file of AO, who shall consider the evidence as well as the valuation report and after hearing the appellant, shall determine the undisclosed income, if any.”

4.2 Consequently, the ld. AO has passed fresh assessment order vide fresh order dated 31.12.2007 u/s 158BC r.w.s. 254 of the Act. This order was subject matter of appeal before ld. CIT(A) who disposed the appeal of the assessee vide his order dated 15.10.2009. This order was subject matter before this Tribunal in IT(SS)A No.41/Bang/2009 vide order dated 8.6.2016. This was subject matter of appeal before Hon’ble High Court in ITA No.558/2016 dated 27.2.2023. 4.3 According to the ld. D.R. now the assessee is precluded from arguing that there was no valid notice u/s 143(2) of the Act without specifying the reference of the assessment order against which he requires notice u/s 143(2) of the Act. 5. We have heard the rival submissions and perused the materials available on record. In this case, there was search action u/s 132 of the Act on 22.3.2002 at the chamber of the assessee situated in Amanat House, Shivajinagar, Bangalore, where the assessee was the General Manager of Amanat Co-operative Bank Ltd., Shivajinagar, Bangalore. Consequent to the search action, notice u/s 158BC of the Act was issued to the assessee on 23.9.2002. Further, the ld. D.R. filed a copy of notice issued u/s 143(2) of the Act issued to the assessee on 6.10.2003, which reads as follows:

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5.1 The above notice has been dispatched on 9.10.2003 to the below mentioned address: Mr. Mohd. Asadullah General Manager, Amanat Co-operative Bank Ltd. Shivajinagar Bangalore-1

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5.2 Consequently, assessment order was framed u/s 158BC of the Act on 30.3.2004. Against this assessee went in appeal before ld. CIT(A). Ld. CIT(A) passed the order on 28.6.2005 confirming the order of ld. AO. Against this assessee went in appeal before this Tribunal. The Tribunal has remitted the issue to the file of ld. AO for passing fresh order vide order dated 8.3.2006. The ld. AO has passed consequential order vide order dated 31.12.2007. Later, the assessee carried the appeal before ld. CIT(A) who has confirmed the order of the ld. AO vide his order dated 15.10.2009. The assessee came in appeal before this Tribunal in IT(SS)A No.41/Bang/2009 which was disposed of by this Tribunal vide order dated 8.6.2016. The assessee has raised the additional ground before High Court as stated in earlier para of this order before Hon’ble Karnataka High Court in ITA No.558/2016. The Hon’ble High Court vide order dated 27.2.2023 has remitted the above issue to the Tribunal to adjudicate the same. 5.3 Now the contention of the ld. A.R. is that to frame the assessment u/s 158BC of the Act, there should be a valid notice u/s 143(2) of the Act to be issued and served on the assessee before framing the said assessment order dated 30.3.2004. Since there was no valid notice u/s 143(2) of the Act being served to the assessee before framing assessment u/s 158BC of the Act, the assessment order to be quashed as void-ab-initio. For that purpose, she relied on the order of the Hon’ble Karnataka High Court in the case of CIT Vs. IDEB Buildcon Pvt. Ltd. In ITA No.507/2014 dated 2.2.2016 wherein held as under: “5. After hearing learned counsel appearing for the appellants and after perusal of the entire material available on record, it is not in dispute that the learned counsel appearing for the appellants are unable to produce the acknowledgement for having served the notice to the respondent-assessee as required under the relevant provisions of the Act and Rules. Therefore, answering the substantial questions of law does not arise for consideration.

6.

The Appellate Authority has taken into consideration all these aspects of the matter and recorded a clear finding of fact by assigning

IT(SS)A No.41/Bang/2009 Mohd. Asadulla, Bangalore Page 30 of 32 valid and cogent reasons, holding that no acknowledgement as such has been produced by the revenue, inspite of affording sufficient opportunity. Therefore, the reasoning given by the appellate authority and the appellate Tribunal is strictly in consonance with Section 143(2) of the Income Tax Act. Therefore, interference by this Court is not called for. The instant appeal filed by the appellants is dismissed as devoid of merits.”

5.4 Further, the ld. A.R. placed strong reliance on the judgement of Hon’ble Supreme Court in the case of Hotel Blue Moon reported in 321 ITR 362, wherein held that “Omission on the part of AO to issue notice u/s 143(2) of the Act cannot be a procedural irregularity and the same is not curable and therefore, the requirement of notice u/s 143(2) of the Act cannot be dispensed with.” Further, she also relied on the judgement of Hon’ble Supreme Court in the case of CIT Vs. Laxmandas Khandelwal {108 taxmann.com 183 (SC)} for the same proposition. Section 158BC (b) of the Act expressly provides that “the AO shall proceed to determine undisclosed income of the block period in the manner laid down in section 158BB of the Act and the provisions of section 142 sub section (23) and sub-section (3) of section 143 & section 145 of the Act shall, so far as may be, applied. Thus, the ratio laid down by Hon’ble Supreme Court in the above two judgements be applicable to the assessment framed u/s 158BC or 158BD of the Act. 5.5 The ld. D.R. strongly relied on the judgement of jurisdictional High Court in the case of Adarsh Developers in order in W.P. No.1109/2023 dated 13.12.2023 for the proposition that the assessee cannot question the jurisdiction of assessing officer passing the assessment order after one month from the date of order in view of section 124(3) of the Act. In our opinion, this judgement is relating to assuming of jurisdiction u/s 120 of the Act and not with regard to issue of notice u/s 143(2) of the Act. Hence, the ratio laid down in that judgement does not relate to the issue of notice u/s 143(2) of the

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Act. Hence, the judgement relied by the ld. D.R. cannot be applied to the present case. 5.6 As seen from the records and also from order sheet entry, there was only notice for issuance u/s 143(2) of the Act on 6.10.2003. But there was no evidence regarding service of notice as the department is unable to produce the acknowledgement for having served the notice to the assessee as required under the provision of section 143(2) of the Act, which requires service of notice and not issue of notice as held by jurisdictional High Court in the case of IDEB Buildcon Pvt. Ltd. cited (supra). Being so, we have to accept the assessee’s contention that there is no service of mandatory notice u/s 143(2) of the Act. Therefore, the first assessment order framed on 30.3.2004 u/s 158BC of the Act is bad in law. Consequently, all further proceedings emanated from this impugned assessment order is bad in law. Accordingly, we are constrained to set aside the assessment order dated 30.3.2004 passed u/s 158BC of the Act since there was no valid service of notice u/s 143(2) of the Act. This ground raised by the assessee before Hon’ble High Court and remitted by the High Court to the file of ld. AO for adjudication is decided in favour of the assessee and against the revenue. 6. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 15th Jan, 2024

Sd/- Sd/- (George George K.) (Chandra Poojari) Vice President Accountant Member

Bangalore, Dated 15th Jan, 2024. VG/SPS

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Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.

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